European Innovation Scoreboard Comparative Analysis 2008 Final Report

This is the eighth edition of the European Innovation Scoreboard (EIS), which provides a
comparative assessment of the innovation performance of EU Member States, under the
EU Lisbon Strategy. The methodology for the 2008 EIS is revised compared to that of
2007 with a stronger focus on services, non-technological aspects, and outputs of
innovation (Section 5.1). The analysis of trends over time is now based on changes in
the absolute values of the indicators over a five year period, rather than the previous
approach of measuring trends relative to the EU average.

EUROPEAN INNOVATION SCOREBOARD 2008

COMPARATIVE ANALYSIS OF INNOVATION PERFORMANCE

January 2009

The EIS report and its Annexes, accompanying thematic papers and the indicators’database are available at http://www.proinno-europe.eu/metrics

Disclaimer:The views expressed in this report, as well as the information included in it, do notnecessarily reflect the opinion or position of the European Commission and in no waycommit the institution.This report has been prepared by the Maastricht Economic and social Research andtraining centre on Innovation and Technology (UNU-MERIT).

AcknowledgementsThe report has benefited from the work on calculating composite indicator growth ratesby the Joint Research Centre (Institute for the Protection and Security of the Citizen) ofthe European Commission, from the thematic paper on the Global Innovation Scoreboardby the Italian National Research Council (CNR), and by the work on scientific public-private co-publications by the Centre for Science and Technology Studies (CWTS).

21. EXECUTIVE SUMMARYThis is the eighth edition of the European Innovation Scoreboard (EIS), which provides acomparative assessment of the innovation performance of EU Member States, under theEU Lisbon Strategy. The methodology for the 2008 EIS is revised compared to that of2007 with a stronger focus on services, non-technological aspects, and outputs ofinnovation (Section 5.1). The analysis of trends over time is now based on changes inthe absolute values of the indicators over a five year period, rather than the previousapproach of measuring trends relative to the EU average.Finland, Ireland, Cyprus and Bulgaria are the best improving EU countrieswithin their peer groups (Section 3)The EIS 2008 includes innovation indicators and trend analyses for the EU27 MemberStates as well as for Croatia, Turkey, Iceland, Norway and Switzerland. Based on theirinnovation performance across 29 indicators, EU Member States fall into the followingfour country groups:Summary innovation performance EU Member States (2008 SII)

Note: The Summary Innovation Index (SII) is a composite of 29 indicators going from a lowest possibleperformance of 0 to a maximum possible performance of 1. The 2008 SII reflects performance in 2006/2007due to a lag in data availability.

• Sweden, Finland, Germany, Denmark and the UK are the Innovation leaders, with innovation performance well above that of the EU average and all other countries. Of these countries, Germany is improving its performance fastest while Denmark is stagnating. • Austria, Ireland, Luxembourg, Belgium, France and the Netherlands are the Innovation followers, with innovation performance below those of the innovation leaders but above that the EU average. Ireland's performance has been increasing fastest within this group, followed by Austria. • Cyprus, Estonia, Slovenia, Czech Republic, Spain, Portugal, Greece and Italy are the Moderate innovators, with innovation performance below the EU average. The trend in Cyprus' innovation performance is well above the average for this group, followed by Portugal, while Spain and Italy are not improving their relative position. • Malta, Hungary, Slovakia, Poland, Lithuania, Romania, Latvia and Bulgaria are the Catching-up countries with innovation performance well below the EU average. All of these countries have been catching up, with the exception of Lithuania. Bulgaria and Romania have been improving their performance the fastest.

3The EU is improving its performance, especially in human resources, broadbandand venture capital (Section 3.4) …The revised methodology allows a new analysis of the trends in innovation performanceat EU level. This shows that the EU is making overall progress, with particularly strongincreases in the numbers of graduates in science, engineering, social sciences andhumanities, both at first degree and graduate level. Other areas of strong increase are inbroadband and in venture capital investments, although the statistics do not yet capturethe impact of the economic downturn in 2008.… and decreasing the innovation gap with the US and Japan (Section 4) …The 2008 EIS includes a separate analysis of the EU27 performance compared with theUnited States and Japan based on a set of comparable indicators. This shows that therehas been a continued improvement in the EU's performance relative to the US and arecent improvement relative to Japan. Nevertheless, there remains a significant gapbetween the EU and these two other regions and there appears to be some slowing downin the catching up with the US in recent years.EU INNOVATION GAP TOWARDS US AND JAPAN

Performance for each reference year is measured using, on average, data with a two-year lag (e.g.performance for 2008 is measured using data for 2006). The EU innovation gap is measured as the distancebetween the average performance of the EU and that of the US and Japan on 16 comparable indicators. An EUinnovation gap of e.g. -40 means that the US or Japan is performing at a level of 140, or 40% above that ofthe EU.

The EU’s catching up is due to the improvements in graduate numbers, broadband andventure capital, but also to strong relative improvements in public private linkages (asmeasured by joint scientific publications). The remaining gap with both the US and Japanis concentrated in four areas: international patenting (as measured under the patentcooperation treaty), public private linkages and numbers of researchers (despite theimprovements in both these areas), and business R&D expenditures (where both EU andUS values have stagnated, while Japan's have increased).… while holding its ground against the emerging economies (Section 5.3)The Global Innovation Scoreboard 2008 (GIS 2008) aims at comparing the innovationperformance of the EU to that of the other major R&D spenders in the world: Argentina,Australia, Brazil, Canada, China, Hong Kong, India, Israel, Japan, New Zealand, Republicof Korea, Mexico, Russian Federation, Singapore, South Africa and the US. The analysisshows that the EU27 block has a higher overall performance than emerging economiessuch as China, India and Brazil and that several EU countries are among those that havemost improved their relative ranking in the period between 1995 and 2005.New analysis confirms the importance of non-R&D innovation (Section 5.2, 5.4)R&D is not the only method of innovating. Other methods include technology adoption,incremental changes, imitation, and combining existing knowledge in new ways. Ananalysis of firms innovating without performing R&D based on the 2007 Innobarometer

4survey shows that while these ‘neglected innovators’ tend to have lower innovativecapabilities than R&D performing firms, the majority do invest in creative innovativeactivities and are just as likely to be fast growing firms. Despite this, these 'neglectedinnovators' are much less likely to receive public support for their innovations.An important part of non-R&D innovation is creativity and design. As a contribution tothe 2009 European Year of Creativity and Innovation, a Design, Creativity andInnovation scoreboard was constructed using a range of novel indicators. The analysis ofthis scoreboard shows that countries with a good creative climate tend to have higherlevels of R&D and design activities and also strong overall innovation performance.These findings point to the need to consider design and other non-R&D activities as partof the broader approach to innovation policy as well as to the strong links betweencreativity and innovation.

2. INTRODUCTIONThe European Innovation Scoreboard (EIS) has been published annually since 2001 totrack and benchmark the relative innovation performance of EU Member States. For theEIS 2008 the methodology has been revised and the number of dimensions increased to7 and grouped into 3 main blocks covering enablers, firm activities and outputs (Figure1). The purpose of this revision is to have dimensions that bring together a set of relatedindicators to give a balanced assessment of the innovation performance in thatdimension. The blocks and dimensions have been designed to accommodate thediversity of different innovation processes and models that occur in different nationalcontexts.

FIGURE 1: DIMENSIONS OF INNOVATION PERFORMANCE CAPTURED IN THE EIS

• ENABLERS captures the main drivers of innovation that are external to the firm as: o Human resources – the availability of high-skilled and educated people. o Finance and support – the availability of finance for innovation projects and the support of governments for innovation activities.

• FIRM ACTIVITIES captures innovation efforts that firms undertake recognising the fundamental importance of firms’ activities in the innovation process: o Firm investments – covers a range of different investments firms make in order to generate innovations. o Linkages & entrepreneurship – captures entrepreneurial efforts and collaboration efforts among innovating firms and also with the public sector. o Throughputs – captures the Intellectual Property Rights (IPR) generated as a throughput in the innovation process and Technology Balance of Payments flows.

• OUTPUTS captures the outputs of firm activities as:

o Innovators – the number of firms that have introduced innovations onto the market or within their organisations, covering technological and non- technological innovations. o Economic effects – captures the economic success of innovation in employment, exports and sales due to innovation activities.

5It is considered that the above described dimensions form the core of national innovationperformance. In addition, there are wider socio-economic factors that influenceinnovation, such as the role of governments, markets, social factors and the demand andacceptance of innovation. These factors and their relationship with innovationperformance have been explored in various EIS thematic papers. The indicators whichare included in each of the dimensions are listed in Table 1 and full definitions areavailable in Annex C. The rationale for including these dimensions and indicators isdiscussed in detail in the Methodology Report. The new methodology also includes arevised method of calculating countries’ average innovation performance allowingtracking the development of individual innovation performance over time. The newmethodology only uses internationally comparable statistics that are regularly updated,and is therefore limited by the availability and timeliness of such data. It is intended tomaintain the same methodology for the 2009 and 2010 editions of the EuropeanInnovation Scoreboard to allow direct comparability between reports, while at the sametime exploring the potential of new statistical sources through the EIS thematic reports.The EIS 2008 uses the most recent statistics from Eurostat and other internationallyrecognised sources as available at the time of analysis. It is important, as indicated inTable 11, to note that the data relates to actual performance in 2006 and 2007. As aconsequence the 2008 EIS does not capture the most recent changes in innovationperformance, or the impact of policies introduced in recent years which may take sometime to impact on innovation performance.

2 Exceptions to the reference years are shown in Annex C. For some indicators weighted averages have beenused, more details are available in Annex C.

73. EUROPEAN INNOVATION SCOREBOARD: 2008 FINDINGS3.1. Innovation performanceThe Summary Innovation Index (SII) gives an “at a glance” overview of aggregatenational innovation performance and is calculated as a composite of the 29 EISindicators (see Section 8.1 for the methodology for calculating composite indicators3).Figure 2 shows the results for the 2008 SII for European countries4. Compared to theEIS 2007, non-European countries are no longer directly included in the EIS5. Thesecountries are included in the Global Innovation Scoreboard (Section 5.3) and for Japanand the US a more detailed comparison with the EU27 is discussed in Section 4.

FIGURE 2: INNOVATION PERFORMANCE (2008 SUMMARY INNOVATION INDEX)

Reference data for most of the underlying indicators are for 2006 and 2007.

Based on a statistical cluster analysis of SII scores over a five-year period and using thesame names for the four country groups as in the EIS 2007 the countries can be dividedinto the following groups: • Denmark, Finland, Germany, Sweden, Switzerland and the UK are the Innovation leaders, with innovation performance well above that of the EU27 and all other countries. • Austria, Belgium, France, Ireland, Luxembourg and the Netherlands are the Innovation followers, with innovation performance below those of the innovation leaders but above that of the EU27. • Cyprus, Estonia, Iceland, Slovenia, Czech Republic, Greece, Italy, Norway, Portugal and Spain are the Moderate innovators with innovation performance below the EU27, where the first 4 countries show a better performance than the last 6 countries. • Bulgaria, Croatia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, Slovakia and Turkey are the Catching-up countries. Although their innovation performance

3 The SII has also been calculated retrospectively using the EIS 2008 methodology for the last five years toenable comparability of results; the SII time series is provided in Annex D.4 All of the European countries shown have good data availability, i.e. for at least 70% of the indicators (i.e. for22 of the 29 indicators).5 Non-European countries in the EIS 2007 included Australia, Canada, Israel, Japan and the United States(US).

8 is well below the EU average, this performance is increasing towards the EU average over time with the exception of Croatia and Lithuania (Figure 3).

For most countries group membership is the same as that identified in the EIS 20076.Exceptions to this are Greece and Portugal which have moved from the Catching-upcountries in the EIS 2007 to the group of Moderate innovators, a result which can bothbe explained from their strong growth in innovation performance and from the revisedset of indicators used in calculating average innovation performance7. A furtherexception is Iceland which has dropped from the Innovation followers to the Moderateinnovators following the revised method of calculating countries’ average innovationperformance8.

Average annual growth in innovation performance

Colour coding matches the groups of countries identified in Section 3.1: green are the innovation leaders,yellow are the innovation followers, orange are the moderate innovators, blue are the catching-up countries.Average annual growth rates as calculated over a five-year period. The dotted lines show EU performance andgrowth.

6 Within the Innovation leaders group it can also be noted that Switzerland is the leading country, compared toSweden in the 2007 EIS report. This partly reflects the change in methodology but also the strong growth bySwitzerland in areas such as economic effects and throughputs (see country profiles in Section 6).7 For Portugal performance is above average for the new indicators on S&E and SSH doctorate graduates,Private credit, Broadband access by firms and Resource efficiency innovators. Greece also benefits from aboveaverage performance on Broadband access by firms and Resource efficiency innovators but also from a verylarge increase for New-to-market sales from the 2004 results from the Community Innovation Survey used forthe EIS 2007 and the 2006 results used for the EIS 2008.8 In determining the maximum and minimum scores in the normalisation process (cf. Step 6 in Section 8.1)small countries with populations of 1 million or less are no longer included.

93.2. Development in innovation performanceThe development in innovation performance has been calculated for each country and forthe EU27 as a block using data over a five-year period9. This calculation is based onabsolute changes in the indicators, as opposed to previous EIS reports where trendswere calculated relative to the EU average. All countries, with the exception of Denmarkshow an absolute improvement in the innovation performance over the period. Romaniaand Bulgaria have experienced the fastest growth in performance, albeit from a lowstarting point.Within the four identified country groups growth performance is very different and Table2 identifies the growth leaders within each group. Within the Innovation leaders,Switzerland is the growth leader and all other countries in this group show a rate ofimprovement that is below that of the EU27. For the Innovation followers we observethat only Ireland and Austria have managed to grow faster than the EU27. Thesecountries are the growth leaders within the Innovation followers. Of the Moderateinnovators seven countries have grown faster than the EU27, but three countries haveshown a slower progress: Italy, Norway and Spain. The growths leaders here are Cyprusand Portugal. Of the Catching-up countries two countries have actually grown at a slowerpace than the EU27: Lithuania and Croatia. Bulgaria and Romania are the growth leadersalso showing the overall fastest rate of improvement in innovation performance.The average growth rates for the four country groups (Table 2) show that there isbetween group convergence with the Moderate innovators and the Catching-up countriesgrowing at a faster rate than the Innovation leaders and Innovation followers. Thisoverall process of catching up, where countries with below average performance havefaster growth rates than those with above average performance, can also be observed atthe level of most individual countries. Notable exceptions include Cyprus which combinesa close to average level of performance with a high growth rate; Italy, Spain, Norway,Lithuania and Croatia which combine below average levels of performance with belowaverage growth rates; and Switzerland which is combining a high level of innovationperformance and an above average rate of improvement.

Innovators Firm investments

Throughputs Linkages & entrepreneurship

3.3. Innovation dimensions

The performance of the four country groups across the different innovation dimensions isshown in Figure 4 (country profiles are provided in Section 6). The Innovation leadersand the Innovation followers have the smallest variance in their performance across thedifferent dimensions10. This suggests that high levels of performance require countries toperform relatively well over all the dimensions of innovation. For the Innovation followersperformance in Firm investments is a relative weakness.For Moderate innovators and Catching-up countries the pattern of performance is lessbalanced across the dimensions. Moderate innovators, on average, show a relativelystrong performance in Finance and support and a relatively weak performance inThroughputs. The Catching-up countries show a relatively strong performance inEconomic effects and a relatively weak performance in Throughputs. The Catching-upcountries do worse in all dimensions compared to the other country groups, only inEconomic effects their performance comes close to that of the Moderate innovators.

10 The variance across all 7 dimensions is 0.14% for the Innovation leaders, 0.14% for the Innovationfollowers, 0.65% for the Moderate innovators and 0.63% for the Catching-up countries.

11Growth performance of the four country FIGURE 5: COUNTRY GROUPS: GROWTHgroups shows some similarities as well as PERFORMANCE PER DIMENSIONdifferences (Figure 5). In all groups, thestrongest drivers of growth are theThroughputs, Finance and support and Economic effectsHuman resources dimensions. TheModerate innovators and Catching-up Innovatorscountries show improvements inEconomic effects, Linkages & Throughputsentrepreneurship and Firm investments,while the Innovation leaders and Linkages &Innovation followers are on average entrepreneurshipstagnating or declining across thesedimensions. All of the groups show some Firm investmentsdecline in the Innovators dimension.Figure 5 confirms that the overall Finance and supportconvergence process as shown in Figure 3also generally takes place within each Human resourcesinnovation dimension.Country rankings for each innovation -4% 0% 4% 8% 12%dimension are shown in Figures 6 and 7. C atching-up countries Moderate innovatorsWithin the different innovation Innovation followers Innovation leadersdimensions, the Innovation leaders onaverage take the leading spots, in Average annual growth rates as calculated over a five-particular in the Enablers and Firm year period.activities dimensions, followed by theInnovation followers (Figure 6). Growth performance is dominated by the Moderateinnovators and Catching-up countries in all dimensions (Figure 7). Figures 6 and 7combined lead to a number of interesting observations which will be discussed next.

All Innovation leaders perform well in Human resources. One exception is Germany,which, however, shows a better growth performance than the rest of this group. The lowgrowth of the other countries may be due to their high performance level which meansthat there is less room for rapid improvements. Within Finance and support, the UK isthe only Innovation leader showing a strong growth, in particular due to very rapidgrowth in Venture capital and Broadband access. In this dimension, Germany is showinga relatively weaker performance combined with low growth. All Innovation leaderscombine a high performance level in Firm investments with either moderate rates ofimprovement (Finland, Germany, Switzerland) or moderate declines (Denmark, Sweden,UK). In Linkages & entrepreneurship all Innovation leaders show a strong performance,but only Finland, Germany and Switzerland have managed to improve their performance.Switzerland is the best performer in Throughputs and it also has the highest growth rate,closely followed by Finland and Sweden. Within the Innovators dimension, performanceis most unequal, with Germany and Switzerland performing very strongly, Denmark,Finland and Sweden performing moderately and the UK performing relatively weak. OnlyFinland has managed to improve its performance in this dimension. Germany andSweden are leading in Economic effects and are the only Innovation leaders whomanaged to improve their performance in this dimension. The UK shows a relativelyweaker performance here with both the lowest performance level of the Innovationleaders and the sharpest decline.

12Innovation followers (Austria, Belgium, France, Ireland, Luxembourg,Netherlands)In Human resources Ireland is notable in combining a high performance level and astrong growth performance. Belgium and Luxembourg are among the slowest growers inHuman resources across the EU, but still managed to marginally improve theirperformance. The Netherlands is performing relatively well in Finance and support but itsgrowth is below average. Luxembourg is showing the fastest rate of improvement acrossthe EU in this dimension, while Austria is among the slowest growers due in particular toa decline in Venture capital performance. Austria is performing strongly in Firminvestments and Linkages & entrepreneurship, where it also shows a high rate ofimprovement relative to the other Innovation followers. Luxembourg recorded a strongdecline in performance on Linkages & entrepreneurship. All Innovation followers dorelatively well in Throughputs, in particular Luxembourg, which is also showing an aboveEU average growth performance. The other Innovation followers have experienced lowergrowth than the EU average. All Innovation followers perform above the EU average inthe Innovators dimension except the Netherlands, but it is the only Innovation followerwhich has managed to improve its performance. Performance in Economic effects isquite similar, with Ireland showing the strongest performance, and Austria showing thehighest rate of improvement.

Norway, Portugal, Slovenia, Spain)In Human resources Estonia, Norway and Slovenia show above EU average performance,and, except for Greece, Slovenia and Spain, all Moderate innovators show an above EUrate of improvement. In particular Cyprus, Italy and Portugal have managed to achievehigh growth rates. In Finance and support it is Iceland which shows overall highestperformance of all countries and the fastest rate of improvement11. Also Spain hasmanaged to combine above average EU27 levels of performance and rates ofimprovement. In Firm investments four Moderate innovators perform above EU averageand five countries have managed to improve their performance. In particular, Estonia isthe country with the highest rate of improvement of any country as a result of strongimprovements in Business R&D expenditures and Non-R&D innovation expenditures.Linkages & entrepreneurship shows four Moderate innovators performing above average,and of these Cyprus has the overall fastest rate of improvement of any country. Iceland,Norway and Spain show a decline in their performance in this dimension. In Throughputsall Moderate innovators perform below average. Seven of these countries have managedto improve their performance faster than the EU27 in this dimension, while the growthperformance of Estonia, Italy and Spain, albeit positive, is among the weakest of allcountries. Innovators is the dimension where the Moderate innovators perform relativelybest, with Cyprus, Greece and Portugal among the best performing EU countries.However, in terms of growth, only Greece and Portugal have managed to improve theirperformance in this dimension. The Czech Republic performs above average in Economiceffects while all other Moderate innovators perform below average. Growth performanceof Cyprus and Greece is highest of all countries, and also Estonia, Portugal and Spainhave grown faster than the EU27.

Poland, Romania, Slovakia, Turkey)The Catching-up countries generally perform below EU average on Human resources,with the exception of Lithuania and Poland. Growth performance is average, with five

11 Note that all data used in the EIS are from 2007 or before and thus do not capture the 2008 financial crisis.

13countries growing at a rate below average and Croatia, Latvia, Poland, Romania andSlovakia managing to grow faster than the EU27. Performance in Finance and Support isbelow average for all Catching-up countries, but Bulgaria, Latvia, Lithuania, Romania andSlovakia have grown faster than average. Of the Catching-up countries Slovakia is thebest performer in Firm investments, while Bulgaria, Latvia and Turkey are among thefastest growing countries and also Hungary, Lithuania, Malta, Poland and Romania haveimproved their performance. Slovakia is showing a strong decline in performance in thisdimension due to declining Business R&D expenditures. In Linkages & entrepreneurshipno Catching-up country is performing above the EU27 average but the majority countrieshave grown faster than the EU27 average with only Latvia and Lithuania experiencing adecline in their performance. Throughputs is the other dimension where all Catching-upcountries perform below average but are also showing the strongest rates ofimprovement. Bulgaria, Latvia, Malta, Poland, Romania, Slovakia and Turkey are thefastest growing of all countries in this dimension. Performance in Innovators shows thatCroatia and Turkey are performing above the EU27 average12, but also that sevenCatching-up countries have the lowest levels of performance. Only three Catching-upcountries have managed to improve their performance, in particular Bulgaria, which ishaving one of the fastest rates of improvement. Malta is the only Catching-up countryperforming above EU average in Economic effects, but also Hungary and Slovakia areperforming relatively well. Growth performance is more diverse, with a decline in growthfor two countries, and at the same time, Hungary, Romania and Turkey among theoverall fastest growing countries.

12 However, it should be noted that data availability for Turkey and Croatia in this dimension is limited.

0.80 Economic effects

Colour coding matches the groups of countries identified in Section 3.1: green are the Innovation leaders,yellow are the Innovation followers, orange are the Moderate innovators, blue are the Catching-up countries.

9.0 Economic effects

Colour coding matches the groups of countries identified in Section 3.1: green are the Innovation leaders,yellow are the Innovation followers, orange are the Moderate innovators, blue are the Catching-up countries.

163.4. EU27 performanceThe revised methodology used in the 2008 FIGURE 8: EU DRIVERS OF GROWTHEIS allows performance and absolute growthrates to be analysed for the EU2713. The "2004"analysis of the EU27 growth rate in innovation Human reso urces 0.600 "2008"

performance shows an average annual growth Finance and

0.400rate of 2.3% over a five year period. This Eco no mic effects suppo rtimprovement is particularly due to Human 0.200

13 In previous EIS reports it was not possible to analyse performance and growth at EU level as calculationswere all made relative to the EU average.14 A relative strength means that the performance of the EU on that indicator is above the averageperformance of the EU on all indicators.

The shaded area gives the average performance for all The shaded area gives the average growth rateindicators. for all indicators. Average annual growth rates as calculated over a five-year period.The indicators reflecting Enablers are highlighted in yellow, those reflecting Firm activities in green and thosereflecting Outputs in green.

4. EU INNOVATION GAP WITH THE US AND JAPAN

The US and Japan are not included in the main EIS analysis as for both countries dataare missing for too many indicators. For the innovation gap comparison, we use adifferent set of 17 indicators of which 12 indicators are identical to those of the EIS(Table 3). The EIS indicators on S&E and SSH graduates have been replaced with the(EIS 2007) indicator on S&E graduates. Broadband access by firms is replaced by theshare of broadband subscribers and the share of researchers15 has been added as anadditional indicator for Enablers16. For Firm activities, an additional indicator is PCT

15 “Researchers are viewed as the central element of the research and development system. They are definedas professionals engaged in the conception and creation of new knowledge, products, processes, methods andsystems and are directly involved in the management of projects” (OECD Science, Technology and IndustryScoreboard 2007).16 This indicator was also included in the 2006 Global Innovation Scoreboard.

18patents17 (to compensate for a possible home advantage in only using European PatentOffice registrations) and trademarks is a weighted average of the EIS indicator onCommunity trademarks and an indicator from the World Development Indicatorsmeasuring national trademark applications by residents (also to compensate for apossible home advantage). For the US, data for knowledge-intensive services exportsare not available. For Japan, data for venture capital are not available and data for theemployment shares in medium-high and high-tech manufacturing and knowledge-intensive services are for 2003.

TABLE 3: EU27-US-JAPAN INDICATORS

Data source Reference yearENABLERS* S&E graduates per 1000 population aged 20-29 Eurostat 2006Population with tertiary education per 100 population aged 25-64 Eurostat 2006* Researchers per 1000 population OECD (MSTI database) 2006 (2005 for US)Public R&D expenditures (% of GDP) Eurostat 2006Venture capital (% of GDP) EVCA / Eurostat 2007 (no data for JP)* Broadband subscribers per 1000 population World Development 2005 Indicators (WorldBank)FIRM ACTIVITIESBusiness R&D expenditures (% of GDP) Eurostat 2006IT expenditures (% of GDP) EITO / Eurostat 2006Public-private co-publications per million population Thomson Reuters / 2006 CWTSEPO patents per million population Eurostat 2005* PCT patents per million population OECD 2005* Trademarks per million population, average of: • Community trademarks per million population OHIM / Eurostat 2007 • Trademark applications (residents) per million population World Development 2005 Indicators (WorldBank)Technology Balance of Payments flows (% of GDP) World Development 2006 Indicators (WorldBank)OUTPUTSEmployment in medium-high & high-tech manufacturing (% of Eurostat / OECD 2006workforce) (2003 for JP)Employment in knowledge-intensive services (% of workforce) Eurostat / OECD 2006 (2003 for JP)Medium and high-tech manufacturing exports (% of total exports) Eurostat 2006Knowledge-intensive services exports (% of total services exports) Eurostat 2006 (no data for US)The indicators highlighted with an * are not identical to but proxies for the EIS indicators.

Figure 10 shows that the innovation performance of the US and Japan is well above thatof the EU27. The EU-US gap has dropped significantly18, in particular between 2005 and

17 The Patent Cooperation Treaty (PCT) is an international treaty, administered by the World IntellectualProperty Organization (WIPO), between more than 125 countries. The PCT makes it possible to seek patentprotection for an invention simultaneously in each of a large number of countries by filing a single“international” patent application instead of filing several separate national or regional patent applicationsalthough the granting of patents remains under the control of the national or regional patent offices.18 Due to a different approach and a slightly different set of indicators, the results reported here are differentfrom those reported in the EIS 2007 report. The EIS 2007 report concluded that the EU-US gap had droppedsignificantly between 2003 and 2006 but showed a very modest reduction only in 2007 and the EU-Japan gaphad dropped significantly between 2004 and 2006 but only modestly in 2007.

192006 although the relative progress of the EU appears to have slowed down since then.The EU-Japan gap at first increased but has been declining at a steady rate in the last 4years.

FIGURE 10: EU INNOVATION GAP TOWARDS US AND JAPAN

Performance for each reference year is measured using, on average, data with a two-year lag (e.g.performance for 2008 is measured using data for 2006). The EU innovation gap is measured as the distancebetween the average performance of the EU and those of the US and Japan on 16 indicators. An EU innovationgap of e.g. -40 means that the US or Japan is performing at a level of 140, or 40% above that of the EU.

0 50 100 150 200 250 -4% -2% 0% 2% 4% 6% 8% 10%

US data for KIS exports are not available. Average annual growth rates as calculated over a five-year period.The indicators reflecting Enablers are highlighted in yellow, those reflecting Firm activities in green and thosereflecting Outputs in green.

The US is performing better than the EU27 in 12 indicators, only in S&E graduates,Trademarks, Technology Balance of Payments flows and Medium-high and high-techmanufacturing employment is the EU27 performing better (Figure 11). Overall there is aclear performance gap in favour of the US, with the US showing a better performance inEnablers, Firm activities and Outputs. But the US innovation lead is declining, as its

20innovation performance has grown at an annual rate of 0.95% while the EU27 is growingat an annual rate of 2.65%19. It is striking that the EU outperforms the US in growthperformance in all of the indicators except Business R&D, EPO patents and PCT patents.The EU27 is closing the performance gap with the US in Tertiary education, Researchers,Public R&D, Venture capital, Broadband subscribers, Public-private co-publications,Knowledge-intensive services employment and Medium-high and high-techmanufacturing exports. The EU27 is increasing its lead in S&E graduates, Trademarks,Technology Balance of Payments flows and Medium-high and high-tech manufacturingemployment. The US is slightly improving its lead in Business R&D, EPO patents and PCTpatents.Japan is performing better than the EU27 in 12 indicators, only in Trademarks,Technology Balance of Payments flows, Knowledge-intensive services employment andKnowledge-intensive services exports is the EU27 performing better (Figure 12). Overallthere is a clear performance gap in favour of Japan, with Japan showing a betterperformance in Enablers, Firm activities and Outputs. The Japanese innovation lead ishowever decreasing, as its innovation performance has grown at 1.65% while the EU27is growing at an annual rate of 2.65%. The EU27 is closing the performance gap withJapan in S&E graduates, Tertiary education, Researchers, Public R&D, Broadbandsubscribers, Public-private co-publications and Medium-high and high-techmanufacturing exports. The EU27 is increasing its lead in Trademarks, TechnologyBalance of Payments flows and Knowledge-intensive services employment. Japan isimproving its lead in Business R&D, EPO patents, PCT patents and Medium-high andhigh-tech manufacturing employment and Japan is marginally closing the gap inKnowledge-intensive services exports.

0 50 100 150 200 250 -4% -2% 0% 2% 4% 6% 8% 10%

JP data for Venture capital are not available. Average annual growth rates as calculated over a five-year period.The indicators reflecting Enablers are highlighted in yellow, those reflecting Firm activities in green and thosereflecting Outputs in green.

19 The growth rate for the EU27 is different from that reported in Section 3 (2.3%) at the set of indicators usedfor the EU-US and EU-Japan comparison is different from that used in the EIS.

215. THEMATIC REPORTS

5.1. Methodology report20

The EIS 2008 Methodology Report explains in detail the new methodology that has beenused for the EIS 2008 report and also intended for the 2009 and 2010 reports. Therevision of the EIS methodology was a direct result of the challenges discussed in theEIS 2007 report to: 1) measure new forms of innovation; 2) assess overall innovationperformance; 3) improve comparability at national, regional and international levels; and4) measure progress and changes over time.Over the years the EIS has received a number of criticisms such as the lack of anunderlying rationale for the choice of innovation dimensions and indicators; for usingcomposite indicators and ranking tables; for being biased to measuring innovation inhigh-tech industries; for the fact that several of its indicators are highly correlated; andfor the underlying assumption that a higher score on an indicator implies a betterinnovation performance (a review of published criticisms of the EIS is provided in the2008 methodology report).

FIGURE 13: EIS REVISION PROCESS

Input paper

Experts Workshop Policy makers Member States Revision

Output paper

Revision

New Methodology (Methodology Report)

The revised methodology has not only tried to address the above challenges andcriticisms, but the revision process has also actively involved the participation of manystakeholders, from academic researchers to policy makers and Member States’representatives (cf. Figure 13). Stakeholders were invited to participate in the June 16EIS workshop “Improving the European Innovation Scoreboard methodology” inBrussels, discussing in detail the challenges for measuring innovation performance. Theworkshop input report prepared by UNU-MERIT presented a first draft of a revised list ofinnovation dimensions and indicators and report prepared by the Joint Research Centre(JRC) discussed a range of different composite indicator growth formulas measuring realprogress over time. The workshop’s discussions on dimensions and indicators resulted in

20 “Rethinking the European Innovation Scoreboard: A New Methodology for 2008-2010”, September 2008(http://www.proinno-europe.eu/extranet/admin/uploaded_documents/EIS_2008_Methodology_Report.pdf).

22a revised output report discussing an updated draft of a new set of innovationdimensions and indicators21. Further work on the feasibility of adopting the newdimensions and indicators and more discussions with some of the stakeholders hasresulted in the final list of indicators as shown in Table 1.During the revision process three principles were applied in considering possibilities forimprovement: 1) Simplicity such that the number of indicators is limited as compared toother studies and will not undergo unnecessary manipulations; 2) Transparency suchthat all results can be easily recalculated, based on a careful and detailed explanation ofthe methodology for calculating the composite innovation indicators; and 3) a reasonablelevel of continuity with previous and future years such that the results between the newEIS 2008 will be directly comparable to those of the EIS 2009 and EIS 2010 and theresults of the EIS 2000-2007.The revised methodology is presented in the Methodology Report published inSeptember 2008 and it presents a short rationale for including each indicator andconcise definitions.The new methodology also includes a revised method of calculating countries’ averageinnovation performance allowing tracking the development of individual innovationperformance over time. As with any benchmarking exercise, the inherent assumption isthat innovation performance can be measured using the same set of indicators despitethe fact that there are differences in countries’ innovation systems. The newmethodology only uses internationally comparable statistics that are regularly updated,and is therefore limited by the availability and timeliness of such data. It is intended tomaintain the same methodology for the 2009 and 2010 editions of the EuropeanInnovation Scoreboard to allow direct comparability between reports, while at the sametime exploring the potential of new statistical sources through the EIS thematic reports.

5.2. Neglected innovators22

R&D is not the only method of innovating. Other methods include technology adoption,incremental changes, imitation, and combining existing knowledge in new ways. With thepossible exception of technology adoption, all of these methods require creative effort onthe part of the firm’s employees and consequently will develop the firm’s in-houseinnovative capabilities. These capabilities are likely to lead to productivity improvements,improved competitiveness, and to new or improved products and processes that couldhave wider impacts on the economy. For these reasons, the activities of firms thatinnovate without performing R&D are of interest to policy.The report on “Neglected indicators” uses a new data set to explore innovation activitiesthat are not based on R&D. These activities can be used by both innovative firms thatperform R&D and by innovative firms that do not perform R&D. The data are from theInnobarometer (IB) 2007 survey, which was partly designed to delve further intoinnovative activities that are not based on R&D – to look more closely at how ‘neglectedinnovators’ innovate.The IB survey is based on a quota survey for all 27 EU member states. Results areavailable for 4,395 innovative firms, covering innovative activities over 2005 and 2006.Of these, 52.5% innovate without performing R&D (non-R&D innovators), 40.0%perform R&D in-house, and 7.5% contract out R&D to other firms or organizations. Theshare of non-R&D innovators is similar to the 50% share observed for the third EuropeanCommunity Innovation Survey (CIS) for the three year period of 1998 to 2000.

21 These reports are available at the workshop’s website: http://www.eis.eu/workshop22 Arundel A., C. Bordoy and M. Kanerva, “Neglected innovators: How do innovative firms that do not performR&D innovate? Results of an analysis of the Innobarometer 2007 survey No. 215”, INNO Metrics ThematicPaper, March 2008.

23Compared to firms that perform R&D in-house, a higher percentage of non-R&Dinnovators have less than 50 employees, are active in low technology service sectors,and are located in European countries with below average innovative performance.However, non-R&D innovators are found in all size categories, countries, and sectors. Forexample, 10% of non-R&D innovators have over 250 employees and one-third arelocated in the leading innovative countries of Germany and Scandinavia.Non-R&D innovators, compared to R&D performers, are more likely to focus on processinnovation and to source ideas from within the firm from production engineers anddesign staff. The higher prevalence of process innovation among non-R&D performerssuggests that there are more options for developing process innovations withoutperforming R&D. Non-R&D innovators spend less on innovation than R&D performers.This holds after controlling for the effect of firm size.For product and process innovations, there is no statistically significant differencebetween non-R&D innovators and in-house R&D performers in the percentage of firmsthat report technology adoption with little or no modification in-house or who reportmodifying products or processes obtained from external sources. In all cases,approximately one-third of non-R&D innovators and firms that perform R&D use thesetwo methods.The main difference is in the percentage of innovative firms that develop products,processes, or organizational methods in-house or in collaboration with other externalsources. Twice as many firms that perform R&D in-house collaborate on product orprocess innovations compared to non-R&D innovators (44% versus 22% for productinnovations). However, non-R&D innovators are relatively more dependent than R&Dperforming firms on the diffusion of knowledge from other firms, particularly throughknowledge embodied in acquired products and processes.An important method of innovating without performing R&D (used equally by non-R&Dand R&D performing innovative firms) is to customize or modify products and processesobtained from other firms. The information sources used by both groups for this type ofinnovative activity are similar, except that a higher percentage of R&D performers drawon the use of external experts such as consultants or universities.In general, non-R&D innovators have lower innovative capabilities (i.e. abilities todevelop more novel innovations) than R&D performing firms, with fewer non-R&Dinnovators capable of developing innovations in-house and a smaller percent reportingtraining or skill upgrading linked to innovation. However, a striking result is that thesedifferences are minor: 71% of non-R&D innovators report developing either product orprocess innovations in-house (compared to 91% of R&D performers), 54% of staff timeon innovation is for developing product and process innovations in-house (compared to63% for R&D performers) and 70% report training or skills upgrading for innovation(compared to 79% of R&D performers).The results show that a majority of non-R&D innovators invest in creative innovativeactivities. Many of these firms should therefore be able to benefit from policy support fortheir innovative activities. However, policy appears to fail this group of ‘neglected’innovators. Only 33% of non-R&D innovators report using at least one of six types ofinnovation support programmes, that do not require R&D compared to 47% of R&Dperformers. These differences hold after controlling for the innovative capabilities of non-R&D and R&D innovators. In particular, firms that innovate primarily throughcustomizing or modifying products or processes are significantly less likely than firmsthat develop innovations in-house to apply for or use innovation support programmes.

Table 4: GIS pillars and indicators

Pillar Indicator Triadic patents per population (3 years average)Firm Activities and Outputs Business R&D (BERD) as a % of GDP S&T tertiary enrolment ratio Labour force with tertiary education (% total labour force)Human Resources R&D personnel per population Scientific articles per population ICT expenditures per capitaInfrastructures and Broadband penetration per populationAbsorptive Capacity Public R&D (HERD + GERD) as a % of GDP

For each pillar a “Dimension Composite Innovation Index” is calculated as a simple

average of the indicators. The GIS is composed by each Dimension CompositeInnovation Index. Since the innovation scoreboard should emphasize the innovativeactivities which take place in the business sector, the first pillar - “Firm Activities andOutputs” - accounts for 40 per cent of the total GIS score, while the other two pillars -“Human Resources and “Infrastructures and Absorptive Capacity” - account for 30 percent each24. As in the EIS all variables are normalized on a scale from 0 to 1, andcountries are ranked on an ordinary scale. The GIS 2008 is calculated relatively to twodifferent years – 1995 and 2005 – to allow over time comparison of national innovativeperformance25. It should be noted that a more limited set of indicators is used comparedto the main EIS, as well as a different time period. Therefore the results differ fromthose of the main EIS, particularly for countries that increased their performance overthe period 1995 to 2002 and for countries that have relative strengths in the indicatorsused in the GIS.In Table 5 we summarize the Global Innovation Performance of countries by showingtheir ranks for the GIS and each of the three pillars relatively to years 1995 and 2005.Concerning 2005, among the top ten, countries perform differently across the threepillars. Switzerland, Japan, Korea and Germany show excellent relative performance inFirm innovative activities. Finland, Israel and Canada are particularly strong in HumanResources. Finally, Sweden and Denmark result well-positioned regarding theirInfrastructures and Absorptive Capacity. By comparing the 2005 GIS ranks to 1995 as awhole, it is worth-emphasizing how innovation performance and technologicalcapabilities are phenomena structural in nature.

23 The Global Innovation Scoreboard has been prepared by the Italian National Research Council (CNR).24 Accordingly, the GIS scores are calculates as follows: (pillar_1 * 0.4) + (pillar_2 * 0.3) + (pillar_3 * 0.3).25 Given the inherent structural characteristic of the innovative performances of countries, a time span of 10years has been chosen in order to assess their dynamics over a large period of time. For some countries andthe EU27 block the GIS is not calculated relatively to 1995 due to a lack of data availability. Much of the data isnot available on a comparative basis for years after 2005.

26 Rank variations are calculated using the scores for those countries for which both 1995 and 2005 data areavailable. Rank variations are thus not obscured by the entrance of countries in 2005 for which data were notavailable for 1995.27 GIS rank correlation relatively to 1995 and 2005 is equal to 0.94, while it is around 0.90 for the three pillars.28 Spain’s growth performance on Human Resources (HR) is different from that in the EIS where Spain onlyshows a very modest improvement (cf. Figure 7 and Spain’s country profile in Section 6). For this there aretwo explanations. First, the set of indicators used in the GIS is different from that in the EIS (cf. Table 1)where only one indicator – Labour force with tertiary education – is used in both. Second, where the GIS

26Cyprus (+5), Turkey (+5) and Brazil (+5). Singapore bases its increase mainly on FirmActivities and Human Resources, and Spain and Portugal particularly on HumanResources. China shows its best performance relatively to Firm Activities andInfrastructures and Absorptive Capacity, while it looses 3 positions on Human Resources.Brazil shows strong increases in Firm activities and Infrastructures and AbsorptiveCapacity and a moderate increase in Human Resources. As far as the other BRICcountries are concerned, India improves one position and the Russian Federation looses2 positions.The EU27 reaches the twentieth position, showing a good performance particularly onFirm Activities. The “balanced” innovation performance of the EU27 emerges from Figure14 where it is notable how the three pillars have the same relative importance. TheUnites States show a composition similar to that of the EU27, while Japan’s innovationperformance is more based on business activities.The 1995-2005 rank variations relative to the pillar Firm Activities and Outputs reflectthe major dynamism of three BRIC countries, namely Brazil, China and India, concerningtheir business innovative performances as measured by patenting activity and businessR&D expenditures. Among the top performers, some have been loosing ground relativelyto the other countries, i.e. United States, Sweden, Norway, United Kingdom, Germanyand France. On the opposite, some top performers have been increasing their position:Japan, Korea, Israel and Denmark. The 1995-2005 rank variations relative to the pillarHuman Resources show that Luxembourg, Greece, Korea, Ireland, Singapore, Portugaland Spain are the best gainers. China looses some positions; India holds its positionwhile Brazil and Russian Federation moderately improve. It is worth noting that amongcountries loosing positions there are advanced economies, e.g. the United States,Switzerland, Sweden, Japan, Italy, France, Belgium and Germany. The 1995-2005 rankvariations relative to the pillar Infrastructures and Absorptive Capacity show that themore dynamic countries include three BRIC countries, Brazil, China and India, in additionto Czech Republic, Denmark, Finland, Luxembourg, Norway, Switzerland and UnitedKingdom.Finally, Figure 14 reveals the relative contributions of the three pillars to the GIS 2005.The relative contribution of the innovative performance of the business sector - FirmActivities and Outputs – is particularly important for the first 15 countries with theexception of Canada, Norway and Australia. Also China shows a relative high score ininnovative activities taking place in the business sector. Among the BRIC countries,Human Resources play an important role for the innovation performance of the RussianFederation and India, while Brazil and China show higher relative contributions fromInfrastructure and Absorptive Capacity.

studies improvements between 1995 and 2005, the EIS looks at more recent improvements between 2003 and2007. Evidence for three of the EIS HR indicators shows that Spain was enjoying higher growth rates between1995 and 2005 for Population with Tertiary education (5.5% average annual growth vs. 3.7% for 2003-2007),Participation in life-long learning (1.9% vs. -0.5%) and Youth education attainment level (0.6% vs. -0.4%).Also for S&E graduates average annual growth between 1995 and 2005 was stronger than that between 2002and 2006 (4.0% vs. -3.0%).

0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80

285.4. Creativity and designCreativity and design are important features of a well-developed knowledge economyspurring innovation and having a favourable impact on people’s well-being and businessperformance. The importance of creativity for innovation is reflected by the fact that2009 will be the European Year of Creativity and Innovation: “The aim is to exploit andpromote creative and innovative approaches and initiatives in different domains ofhuman activity and at all levels. While education and culture will be at the centre of theYear, it feeds into many other policy areas, such as enterprise, information society,employment or regional policy”29.In preparation of a Commission Staff Working Document to be published in 2009, theEuropean Innovation Scoreboard project was asked to prepare a statistical documentaimed at measuring Member States’ performance in design and creativity based oncurrently available quantitative indicators, to classify these indicators into meaningfulblocks capturing relevant but distinct aspects of design and creativity, to analyse thelinks between design and creativity and innovation performance, and to suggestimprovements for measuring creativity and design.Following the EIS, this report adopts a ‘scoreboard approach’ using a large set ofindicators to capture the different dimensions. It should be stressed that there is ageneral lack of quantitative indicators which directly measure creativity and design.Creativity is defined as the generation of new ideas, but the number of ideas is anunobserved statistical phenomenon. For design activities there is more statisticalevidence, but the number of indicators directly measuring design activities is limited. Wetherefore have to rely on so-called proxy indicators, which only indirectly measurecreativity and design, thereby creating possible errors in the scoreboard approach wherecountries’ performance could be under- or overvalued based on the respective bias inthese proxy indicators towards measuring ‘true’ performance. The quality of theeducational system, the desire of people to express themselves (artistically) and theopenness of a society towards different countries and cultures determine the Creativeclimate. A more favourable Creative climate will result in more ideas, more creativity,and more creativity is assumed to increase R&D and design activities, where R&D anddesign not only further develop these ideas but also shape them into commerciallyattractive new products and processes, thus increasing innovation.The statistical results in this paper confirm that a favourable Creative climate has apositive effect on a country’s creativity, even after controlling for differences in incomelevels, thus taking into account that wealthier countries are in a position to spendrelatively more resources on their education system. Countries where people are eagerto be involved in artistic and cultural activities also appear to be more creative. However,openness to other countries and cultures, e.g. reflected by larger shares of foreignstudents and employees, does not appear to have a positive impact on creativity.Higher levels of creativity result in increased levels of R&D and design activities.Apparently more ideas create a larger and more diversified pool of potential researchprojects, tempting firms to increase their R&D and design activities. The statisticalresults also show strong evidence for a positive link between increased R&D and designactivities and overall innovation performance, although innovation is also dependent on arange of other framework conditions.

29 http://create2009.europa.eu/

296. COUNTRY PROFILES

In this section for each country a more detailed country profile is shown highlighting foreach country is relative strengths and weaknesses in innovation performance and itsmain drivers of innovation growth. For each country detailed data tables are availablefrom the INNO Metrics website (http://www.proinno-europe.eu/metrics) and detailedinformation on policy measures and governance is available at the INNO PolicyTrendChart website (http://www.proinno-europe.eu/trendchart).

For Belgium, one of the Innovation followers, innovation performance is above the EU27average but the rate of improvement is below that of the EU27. Relative strengths,compared to the country’s average performance, are in Linkages & entrepreneurship,Innovators and Economic effects and relative weaknesses are in Firm investments andThroughputs.Over the past 5 years, Finance and support and Throughputs have been the main driversof the improvement in innovation performance, in particular as a result from stronggrowth in Venture capital (23.1%) and Broadband access by firms (15.1%). Performancein Firm investments and Innovators has worsened, in particular due to a decrease inNon-R&D innovation expenditures (-8.5%).BULGARIA

Bulgaria is one of the Catching-up countries with an innovation performance well belowthe EU27 average but the rate of improvement is one of the highest of all countries andit is a growth leader within the Catching-up countries. Relative strengths, compared tothe country’s average performance, are in Human resources, Finance and support and

30Economic effects and relative weaknesses are in Linkages & entrepreneurship andThroughputs.Over the past 5 years, Throughputs and Finance and support have been the main driversof the improvement in innovation performance, in particular as a result from stronggrowth in Private credit (25.2%), Broadband access by firms (21.5%), Communitytrademarks (67.6%) and Community designs (31.0%). Performance in Economic effectshas hardly grown, in particular due to a decrease in New-to-market sales (-5.7%) andNew-to-firm sales (-3.1%).CZECH REPUBLIC

The Czech Republic is among the group of Moderate innovators with innovationperformance below the EU27 average but the rate of improvement is above that of theEU27. Relative strengths, compared to the country’s average performance, are in Firminvestments, Innovators and Economic effects and relative weaknesses are inThroughputs, Finance and support and Human resources.Over the past 5 years, Throughputs, Human resources and Finance and support havebeen the main drivers of the improvement in innovation performance, in particular as aresult from strong growth in Community designs (26.0%), Technology Balance ofPayments flows (13.1%), S&E and SSH graduates (14.1%), Private credit (11.8%) andBroadband access by firms (40.1%). Performance in Innovators has worsened, due to adecrease in SMEs introducing product or process innovations (-2.6%).DENMARK

Performance per dimension Growth per dimension

EU 0.00 0.20 0.40 0.60 0.80 -6% -4% -2% 0% 2% 4% 6% 8%

For Denmark, one of the Innovation leaders, innovation performance is well above theEU27 average but the rate of improvement is not only below that of the EU27 butvirtually zero. Relative strengths, compared to the country’s average performance, are inHuman resources, Finance and support, Throughputs and Linkages & entrepreneurshipand relative weaknesses are in Firm investments, Innovators and Economic effects.

31Over the past 5 years, Human resources, Finance and support and Throughputs havebeen the main drivers of a stagnating innovation performance, in particular resultingfrom strong growth in Private credit (7.5%) and Community trademarks (5.4%).Performance in Firm investments, Linkages & entrepreneurship, Innovators andEconomic effects has worsened, in particular due to decreases in Innovative SMEscollaborating with others (-8.0%), SMEs introducing product or process innovations (-5.7%), New-to-market sales (-7.7%) and New-to-firm sales (-8.5%).GERMANY

Performance per dimension Growth per dimension

EU 0.00 0.20 0.40 0.60 0.80 1.00 -2% 0% 2% 4% 6% 8%

Germany is one of the Innovation leaders with innovation performance considerably

above the EU27 average and the rate of improvement is about the same as that of theEU27. Relative strengths, compared to the country’s average performance, are inInnovators and Economic effects and relative weaknesses are in Human resources,Finance and support and Throughputs.Over the past 5 years, Human resources, Finance and support and Throughputs havebeen the main drivers of the improvement in innovation performance, in particular as aresult from strong growth in S&E and SSH graduates (12.1%), Life-long learning (6.8%),Broadband access (17.5%) and Community trademarks (6.1%). Performance inInnovators has slightly worsened, due to a decrease in SMEs introducing product orprocess innovations (-0.7%).ESTONIA

For Estonia, one of the Moderate innovators, innovation performance is just below theEU27 average but the rate of improvement is above that of the EU27. Relative strengths,compared to the country’s average performance, are in Finance and support, Firminvestments, Linkages & entrepreneurship and Innovators and relative weaknesses arein Throughputs.Over the past 5 years, Finance and support and Firm investments have been the maindrivers of the improvement in innovation performance, in particular as a result from

Ireland is in the group of Innovation followers, with an innovation performance above

the EU27 average. It is a growth leader within this group of countries with a rate ofimprovement just above that of the EU27. Relative strengths, compared to the country’saverage performance, are in Human resources, Throughputs and Economic effects andrelative weaknesses are in Firm investments and Linkages & entrepreneurship.Over the past 5 years, Human resources and Finance and support have been the maindrivers of the improvement in innovation performance, in particular as a result fromstrong growth in S&E and SSH doctorate graduates (12.8%), Private credit (14.6%) andBroadband access by firms (37.5%). Performance in Firm investments, Linkages &entrepreneurship and Innovators has worsened, in particular due to a decrease in Non-R&D innovation expenditures (-5.7%), Innovative SMEs collaborating with others (-7.0%) and SMEs introducing product or process innovations (-3.3%).GREECE

For Greece, one of the Moderate innovators, innovation performance is below the EU27average and the rate of improvement is above that of the EU27. Relative strengths,compared to the country’s average performance, are in Linkages & entrepreneurship,Innovators and Economic effects and relative weaknesses are in Throughputs and Firminvestments.Over the past 5 years, Finance and support and Economic effects have been the maindrivers of the improvement in innovation performance, in particular as a result fromstrong growth in Broadband access by firms (51.6%) and New–to-market sales (32.8%).Performance in Firm investments has worsened, due to a decrease in Business R&Dexpenditures (-4.5%) and Non-R&D innovation expenditures (-22.7%).

For Spain, one of the Moderate innovators, innovation performance is below the EU27average and the rate of improvement is just below that of the EU27. Relative strengths,compared to the country’s average performance, are in Finance and support andEconomic effects and relative weaknesses are in Firm investments and Linkages &entrepreneurship.Over the past 5 years, Finance and support and Firm investments have been the maindrivers of the improvement in innovation performance, in particular as a result fromstrong growth in Private credit (12.7%), Broadband access by firms (15.3%) and Non-R&D innovation expenditures (13.4%). Performance in Linkages & entrepreneurship andInnovators has worsened, in particular due to a decrease in the Firm renewal rate (-6.0%). The growth in performance in Human resources is significantly below the EUaverage.FRANCE

Performance per dimension Growth per dimension

EU 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 -2% 0% 2% 4% 6% 8%

France is in the Innovation followers group of countries with an innovation performance

above the EU27 average but the rate of improvement is below that of the EU27. Relativestrengths, compared to the country’s average performance, are in the Enablers (Humanresources, Finance and support), and Outputs (Innovators and Economic effects) andrelative weaknesses are in Firm activities (Firm investments, Linkages &entrepreneurship and Throughputs).Over the past 5 years, Human resources, Finance and support and Throughputs havebeen the main drivers of the improvement in innovation performance, in particular as aresult from growth in S&E and SSH doctorate graduates (5.1%), Broadband access byfirms (16.1%) and Community designs (4.9%). Performance in Economic effects has notimproved, in particular due to a decrease in Medium-high & high-tech manufacturingexports (-0.7%).

Performance per dimension Growth per dimension

EU 0.00 0.10 0.20 0.30 0.40 0.50 0.60 -2% 0% 2% 4% 6% 8%

For Italy, one of the Moderate innovators, innovation performance is below the EU27average and the rate of improvement is also below that of the EU27. Relative strengths,compared to the country’s average performance, are in Finance and support andEconomic effects and relative weaknesses are in Human resources, Firm investments andLinkages & entrepreneurship.Over the past 5 years, strong growth has come from Human resources, and Finance andsupport and Throughputs have also been the drivers of the improvement in innovationperformance, in particular as a result from strong growth in S&E and SSH graduates(8.8%), S&E and SSH doctorate graduates (22.7%), Broadband access by firms (18.6%)and Community trademarks (4.7%). Performance in Firm investments has not improvedand performance in Innovators and Economic effects has worsened, in particular due toa decrease in New-to-market sales (-7.8%) and New-to-firm sales (-5.3%).CYPRUS

Cyprus is a growth leader among the group of Moderate innovator countries, with aninnovation performance just below the EU27 average and a rapid rate of improvement.Relative strengths, compared to the country’s average performance, are in Finance andsupport, Linkages & entrepreneurship and Innovators and relative weaknesses are inHuman resources and Throughputs.Over the past 5 years there has been strong growth in Finance and support, Linkages &entrepreneurship, Human resources, Throughputs and Economic effects have also beenmain drivers of the improvement in innovation performance, in particular as a resultfrom strong growth in S&E and SSH doctorate graduates (18.0%), Broadband access byfirms (18.5%), Innovative SMEs collaborating with others (12.3%), Public-private co-publications (11.0%), Community trademarks (12.1%), Community designs (30.5%),New-to-market sales (29.1%) and New-to-firm sales (17.7%). Performance inInnovators has worsened (-4.3%).

For Latvia, one of the Catching-up countries, innovation performance is well below theEU27 average but the rate of improvement is above that of the EU27. Relative strengths,compared to the country’s average performance, are in Human resources and Financeand support and relative weaknesses are in Linkages & entrepreneurship, Throughputsand Innovators.Over the past 5 years, Human resources, Finance and support, Firm investments andThroughputs have been the main drivers of the improvement in innovation performance,in particular as a result from strong growth in S&E and SSH doctorate graduates(25.7%), Private credit (23.4%), Business R&D expenditures (12.7%), Communitytrademarks (29.4%) and Community designs (19.2%). Performance in Linkages &entrepreneurship has worsened, in particular due to a decrease in the Firm renewal rate(-18.6%) and Public-private co-publications (-8.1%).LITHUANIA

Lithuania is among the group of Catching-up countries, with an innovation performance

well below the EU27 average. However, unlike most other countries in this group its rateof improvement is below that of the EU27. Relative strengths, compared to the country’saverage performance, are in Human resources, Finance and support and Linkages &entrepreneurship and relative weaknesses are in Firm investments, Throughputs andInnovators.Over the past 5 years, Finance and support, Human resources and Throughputs havebeen the main drivers of the improvement in innovation performance, in particular as aresult from strong growth in S&E and SSH graduates (10.8%), Private credit (27.9%)and Community trademarks (19.4%). Performance in Linkages & entrepreneurship andInnovators has worsened, in particular due to a decrease in Innovative SMEscollaborating with others (-8.7%) and SMEs introducing product or process innovations(-6.1%).

Performance per dimension Growth per dimension

EU 0.00 0.20 0.40 0.60 0.80 -8% -4% 0% 4% 8% 12% 16%

For Luxembourg, one of the Innovation followers, innovation performance is above theEU27 average but the rate of improvement is slightly below that of the EU27. Relativestrengths, compared to the country’s average performance, are in Throughputs andInnovators and relative weaknesses are in Human resources, Firm investments andLinkages & entrepreneurship.Over the past 5 years, Finance and support and Throughputs have been the main driversof the improvement in innovation performance, in particular as a result from stronggrowth in Private credit (16.8%), Broadband access by firms (20.0%) and Communitydesigns (13.5%). Performance in Firm investments, Linkages & entrepreneurship,Innovators and Economic effects has worsened, in particular due to a decrease in Public-private co-publications (-14.3%), Employment in medium-high & high-techmanufacturing (-6.4%) and New-to-firm sales (-8.0%).HUNGARY

Performance per dimension Growth per dimension

EU 0.00 0.10 0.20 0.30 0.40 0.50 0.60 -2% 0% 2% 4% 6% 8%

Hungary is in the group of Catching-up countries with innovation performance well belowthe EU27 average but a rate of improvement above that of the EU27. Relative strengths,compared to the country’s average performance, are in Economic effects and relativeweaknesses are in Throughputs and Innovators.Over the past 5 years, Throughputs and Economic effects have been the main drivers ofthe improvement in innovation performance, in particular as a result from strong growthin Community trademarks (10.9%), Community designs (8.9%), Knowledge-intensiveservices exports (9.6%) and New-to-market sales (17.0%). Performance in Innovatorshas worsened.

For Malta, one of the Catching-up countries, innovation performance is below the EU27average but the rate of improvement is above that of the EU27. Relative strengths,compared to the country’s average performance, are in Finance and support andEconomic effects and relative weaknesses are in Human resources, Linkages &entrepreneurship and Innovators.Over the past 5 years, Throughputs has been the main driver of the improvement ininnovation performance, in particular as a result from strong growth in Communitydesigns (32.4%) and Technology Balance of Payments flows (37.5%). Performance inEconomic effects has hardly grown, in particular due to a stronger decrease in New-to-firm sales (-18.4%) than the increase in New-to-market sales (16.3%)30.NETHERLANDS

Performance per dimension Growth per dimension

EU 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 -2% 0% 2% 4% 6% 8%

Netherlands is one of the Innovation followers. Its innovation performance is just abovethe EU27 average but the rate of improvement is below that of the EU27. Relativestrengths, compared to the country’s average performance, are in Finance and supportand Linkages & entrepreneurship while relative weaknesses are in Firm investments andInnovators.Over the past 5 years, Human resources and Finance and support have been the maindrivers of the improvement in innovation performance, in particular as a result fromstrong growth in S&E and SSH graduates (11.3%), S&E and SSH doctorate graduates(6.8%) and Broadband access by firms (23.8%). Performance in Firm investments andLinkages & entrepreneurship has worsened, in particular due to a decrease in Non-R&Dinnovation expenditures (-1.5%) and the Firm renewal rate (-4.4%).

30 The drop in sales new-to-firm products between the results for 2004 from CIS-4 and CIS-2006 is due to achange in the Maltese questionnaire such that the simple resale of new goods purchased from other enterprisesis no longer considered as a product innovation.

Performance per dimension Growth per dimension

EU 0.00 0.20 0.40 0.60 0.80 -2% 0% 2% 4% 6% 8%

For Austria, among the group of Innovation followers, innovation performance is abovethe EU27 average. Within this group it is a growth leader with a rate of improvementjust above that of the EU27. Relative strengths, compared to the country’s averageperformance, are in Linkages & entrepreneurship and Innovators and relativeweaknesses are in Human resources and Finance and support.Over the past 5 years, Human resources has been the main driver of the improvement ininnovation performance, in particular as a result from growth in S&E and SSH graduates(7.9%) and Life-long learning (10.5%). But also Firm investments, Linkages &entrepreneurship, Throughputs and Economic effects have shown a steady andsubstantial improvement. Performance in Innovators however has slightly worsened.POLAND

Poland is among the group of Catching-up countries, with an innovation performance

considerably below the EU27 average but an above average rate of improvement.Relative strengths, compared to the country’s average performance, are in Humanresources, Firm investments and Economic effects and relative weaknesses are inFinance and support, Linkages & entrepreneurship and Throughputs.Over the past 5 years, Throughputs have been a strong driver of improved performanceand Human resources and Linkages and entrepreneurship have also been drivers ofimprovement, in particular as a result from strong growth in S&E and SSH doctorategraduates (12.2%), Public-private co-publications (20.6%), EPO patents (9.0%),Community trademarks (11.1%) and Community designs (27.3%). Performance inInnovators and Economic effects has worsened, in particular due to a decrease in New-to-market sales (-13.4%).

Performance per dimension Growth per dimension

EU 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 -2% 0% 2% 4% 6% 8%

For Portugal, one of the Moderate innovators, innovation performance is below the EU27average but the rate of improvement is more than twice that of the EU27 making it agrowth leader within its group of countries. Relative strengths, compared to thecountry’s average performance, are in Finance and support and Innovators while relativeweaknesses are in Human resources, Firm investments, Linkages & entrepreneurshipand Throughputs.Over the past 5 years, Human resources, Finance and support, Firm investments andThroughputs have been the main drivers of the improvement in innovation performance,in particular as a result from strong growth in S&E and SSH graduates (9.8%), S&E andSSH doctorate graduates (19.2%), Broadband access by firms (25.1%), Business R&Dexpenditures (26.3%), EPO patents (8.4%) and Community trademarks (12.1%).Performance in the other dimensions has increased at a slower pace, except inInnovators where there has been almost no improvement.ROMANIA

Romania is one of the growth leaders among the Catching-up countries, with aninnovation performance well below the EU27 average but a rate of improvement that isone of the highest of all countries. Relative strengths, compared to the country’s averageperformance, are in Innovators and Economic effects and relative weaknesses are inFinance and support and Throughputs.Over the past 5 years, Finance and support and Throughputs have been the main driversof the improvement in innovation performance, in particular as a result from stronggrowth in Public R&D expenditures (18.0%), Private credit (17.4%), Broadband accessby firms (24.3%), Community trademarks (36.0%) and Community designs (44.3%).Performance in Firm investments and Innovators has increased at a lower pace.

For Slovenia, one of the Moderate innovators, innovation performance is just below theEU27 average but the rate of improvement is above that of the EU27. Relative strengths,compared to the country’s average performance, are in Human resources, Finance andsupport and Innovators and relative weaknesses are in Throughputs.Over the past 5 years, Finance and support and Throughputs have been the main driversof the improvement in innovation performance, in particular as a result from stronggrowth in Private credit (17.3%), Community trademarks (7.5%) and Communitydesigns (8.6%). Performance in Firm investments, Linkages & entrepreneurship andEconomic effects has increased at a lower pace.SLOVAKIA

For Slovakia, one of the Catching-up countries, innovation performance is well below theEU27 average but the rate of improvement is above that of the EU27. Relative strengths,compared to the country’s average performance, are in Firm investments and Economiceffects and relative weaknesses are in Finance and support, Linkages &entrepreneurship, Throughputs and Innovators.Over the past 5 years, Human resources, Finance and support and notably Throughputshave been the main drivers of the improvement in innovation performance, in particularas a result from strong growth in S&E and SSH graduates (8.7%), Broadband access byfirms (32.0%), EPO patents (12.5%), Community trademarks (27.4%) and Communitydesigns (14.4%). Performance in Firm investments has worsened, in particular due to adecrease in Business R&D expenditures (-13.4%).

Performance per dimension Growth per dimension

EU 0.00 0.20 0.40 0.60 0.80 1.00 -2% 0% 2% 4% 6% 8%

For Finland, one of the Innovation leaders, innovation performance is well above theEU27 average but the rate of improvement is slightly below that of the EU27. Relativestrengths, compared to the country’s average performance, are in Human resources andFirm investments and relative weaknesses are in Throughputs and Innovators.Over the past 5 years, Linkages & entrepreneurship, Throughputs and Innovators havebeen the main drivers of the improvement in innovation performance, in particular as aresult from strong growth in Innovative SMEs collaborating with others (12.4%) andTechnology Balance of Payments flows (17.0%). Performance in Economic effects hasworsened, in particular due to a decrease Knowledge-intensive services exports (-3.4%)and New-to-firm sales (-1.5%).SWEDEN

Performance per dimension Growth per dimension

EU 0.00 0.20 0.40 0.60 0.80 1.00 -4% -2% 0% 2% 4% 6% 8%

Sweden is one of the Innovation leaders and the best performing EU Member State,although its rate of improvement is below that of the EU27. Relative strengths,compared to the country’s average performance, are in Human resources, Finance andsupport and Firm investments and relative weaknesses are in Throughputs andInnovators.Over the past 5 years, Finance and support and Throughputs have been the main driversof the improvement in innovation performance, in particular as a result from relativelystrong growth in Venture capital (9.1%), Broadband access by firms (8.8%), Communitytrademarks (7.8%) and Technology Balance of Payments flows (10.1%). Performance inFirm investments, Linkages & entrepreneurship, Innovators and Economic effects hasworsened, in particular due to a decrease in Innovative SMEs collaborating with others (-4.5%) and the Firm renewal rate (-6.1%).

Performance per dimension Growth per dimension

EU 0.00 0.20 0.40 0.60 0.80 -8% -4% 0% 4% 8% 12% 16%

For the UK, one of the Innovation leaders, innovation performance is above the EU27average but the rate of improvement is below that of the EU27. Relative strengths,compared to the country’s average performance, are in Human resources, Finance andsupport, Firm investments and Linkages & entrepreneurship and relative weaknesses arein Throughputs, Innovators and Economic effects.Over the past 5 years, Finance and support has been the main driver of theimprovement in innovation performance, in particular as a result from strong growth inVenture capital (22.9%) and Broadband access by firms (30.4%). Performance in Firminvestments, Linkages & entrepreneurship, Innovators and Economic effects hasworsened, in particular due to a decrease in Knowledge-intensive services exports (-4.7%), New-to-market sales (-12.7%) and New-to-firm sales (-10.7%).CROATIA

Performance per dimension Growth per dimension

EU 0.00 0.10 0.20 0.30 0.40 0.50 0.60 -2% 0% 2% 4% 6% 8%

For Croatia, one of the Catching-up countries, innovation performance is well below theEU27 average and unlike most other Catching-up countries its rate of improvement isbelow that of the EU27. Relative strengths, compared to the country’s averageperformance, are in Innovators and Economic effects and relative weaknesses are inFirm investments and Throughputs.Over the past 5 years, Human resources and Linkages & entrepreneurship have been themain drivers of the improvement in innovation performance, in particular as a resultfrom Life-long learning (12.7%) and Public-private co-publications (10.1%). Performancein Firm investments and Throughputs has worsened, in particular due to a decrease inBusiness R&D expenditures (-3.6%) and Technology Balance of Payments flows (-7.4%).

Performance per dimension Growth per dimension

EU 0.00 0.10 0.20 0.30 0.40 0.50 0.60 -2% 0% 2% 4% 6% 8% 10%

For Turkey, one of the Catching-up countries, innovation performance is well below theEU27 average but the rate of improvement is above that of the EU27. Relative strengths,compared to the country’s average performance, are in Finance and support, Innovatorsand Economic effects and relative weaknesses are in Human resources (where thecountry’s relative performance is close to zero meaning that it is at the lowest end of therange of countries included in the EIS), Firm investments and Throughputs.Over the past 5 years, Finance and support, Firm investments, Throughputs andEconomic effects have been the main drivers of the improvement in innovationperformance, in particular as a result from strong growth in Private credit (18.9%),Business R&D expenditures (17.5%), Technology Balance of Payments flows (19.8%)and Knowledge-intensive services exports (31.9%). Performance in the other dimensionshas increased at a lower pace.ICELAND

Iceland is among the Moderate innovators, with an innovation performance just belowthe EU27 average but the rate of improvement is above that of the EU27. Relativestrengths, compared to the country’s average performance, are in Finance and supportand Linkages & entrepreneurship and relative weaknesses are in Throughputs,Innovators and Economic effects.Over the past 5 years, Human resources, Finance and support and Throughputs havebeen the main drivers of the improvement in innovation performance, in particular as aresult from growth in S&E and SSH doctorate graduates (24.8%), Private credit(25.1%), Broadband access by firms (18.9%), Community trademarks (17.6%) andTechnology Balance of Payments flows (15.7%). Performance in Firm investments,Linkages & entrepreneurship and Economic effects has worsened, in particular due to adecrease in Employment in medium-high & high-tech manufacturing (-7.8%) andKnowledge-intensive services exports (-6.0%).

For Norway, one of the Moderate innovators, innovation performance is below the EU27average and the rate of improvement is also below that of the EU27. Relative strengths,compared to the country’s average performance, are in Human resources and Financeand support and relative weaknesses are in Firm investments, Throughputs andInnovators.Over the past 5 years, Human resources, Finance and support and Throughputs havebeen the main drivers of the improvement in innovation performance, in particular as aresult from strong growth in S&E and SSH doctorate graduates (20.6%), Broadbandaccess by firms (16.0%), Community trademarks (10.1%) and Technology Balance ofPayments flows (10.8%). Performance in Firm investments, Linkages & entrepreneurshipand Economic effects has worsened, in particular due to a decrease in Business R&Dexpenditures (-4.7%), Medium-high and high-tech manufacturing exports (-7.2%) andNew-to-firm sales (-11.0%).SWITZERLAND

Performance per dimension Growth per dimension

EU 0.00 0.20 0.40 0.60 0.80 1.00 1.20 -2% 0% 2% 4% 6% 8%

Switzerland has the highest overall level of innovation performance and its rate ofimprovement is also above that of the EU27. Relative strengths, compared to thecountry’s average performance, are in Throughputs and Innovators and relativeweaknesses are in Linkages & entrepreneurship and Economic effects.Over the past 5 years, Human resources, Finance and support and Throughputs havebeen the main drivers of the improvement in innovation performance, in particular as aresult from strong growth in S&E and SSH doctorate graduates (8.2%), Venture capital(18.1%), Community trademarks (8.8%), Community designs (9.3%) and TechnologyBalance of Payments flows (10.8%). Performance in Firm investments has not improved.

457. FORWARD LOOKThe final section of this EIS 2008 report will briefly highlight some of the work foreseenfor the EIS 2009. Following the recommendations for continuity from the MethodologyReport, the same methodology and set of innovation dimensions and indicators isplanned for the EIS 2009. This will enable direct comparisons with the EIS 2008 results.A number of thematic papers will be prepared. A first of these will study the long termmechanisms that are at the root of innovation performance analysing data from threewaves of the Community Innovation Survey and will analyse the relevance and nature ofinnovation activities, outcomes and performance at the sectoral level over the long termperiod.Following an increasing request for an update of the 2006 Regional InnovationScoreboard (RIS), a thematic paper will be prepared applying the EIS methodology atthe regional level. The RIS 2009 will use as many indicators as possible from the EIS2008, including the indicators using data from the Community Innovation Survey (CIS).However, not all EU27 Member States are able to deliver regional data from their CIS, soit is expected that not all EU27 regions will be included in the RIS 2009. The RIS 2009will benchmark regions’ innovation performance, their change in innovation performanceand will also identify relative strengths and weaknesses in regions’ innovationperformance.Finally, a new Innobarometer (IB) survey is foreseen. The IB 2009 will explore howcompanies’ innovation activities have changed and if companies have changed theirinnovation strategies in various areas. The IB 2009 will also survey future trends instrategy, innovation activities and investments an input into EIS thematic papers.

468. TECHNICAL ANNEX8.1. Calculating composite indexes

For each of the 7 innovation dimensions average performance will be summarized by

calculating a composite innovation index. For each of the 3 blocks of dimensions averageperformance will be summarized by calculating a weighted composite index using thecomposite innovation indexes for those dimensions belonging to a specific block. Overallinnovation performance will be summarized in the Summary Innovation Index. Themethodology of calculating these composite innovation indexes will now be explained indetail.Step 1: Transforming data Most of the EIS indicators are fractional indicators with values between 0% and 100%. Some EIS indicators are unbound indicators, where values are not limited to an upper threshold. These indicators can be highly volatile and have skewed data distributions (where most countries show low performance levels and a few countries show exceptionally high performance levels). For these indicators – Public-private co-publications, EPO patents, Community trademarks and Community designs, all measured per million population – data will be transformed using a square root transformation.Step 2: Identifying outliers Positive outliers are identified as those relative scores which are higher than the EU27 mean plus 3 times the standard deviation31. Negative outliers are identified as those relative scores which are smaller than the EU27 mean minus 3 times the standard deviation. These outliers are not included in determining the Maximum and Minimum scores in the normalisation process (cf. Step 5).Step 3: Setting reference years For each indicator a reference year is identified based on data availability for all core EIS countries, i.e. those countries for which data availability is at least 75%. For most indicators this reference year will be lagging 1 or 2 years behind the year to which the EIS refers. Thus for the EIS 2008 the reference year will be 2006 or 2007 for most indicators (cf. Table 1).Step 4: Sorting data over time Reference year data are then used for “2008”, etc. If data for a year-in-between is not available we substitute with the value for the previous year (except for indicators using CIS data where we use the average of 2004 and 2006 to impute for 2005). If data are not available at the beginning of the time series, we replace missing values with the latest available year. The following examples will clarify this step and will show how ‘missing’ data are imputed:

If real data will become available for the EIS 2009 or EIS 2010 for any of these ‘missing’ data, then the ‘imputed’ values will be replaced by the real data. This might cause some marginal deviations between the composite index scores between the EIS 2008, 2009 and 2010 reports.Step 5: Extrapolating data For all indicators and countries we extrapolate data for 2009 and 2010 by assuming the same percentage increase between “2008” and “2007”, where for all fractional indicators extrapolated data can never be above 100. The rationale for this extrapolation is to take account of further increases in indicator values beyond the maximum or below the minimum values found within the observed 5 year time period. This way we can fix the Maximum and Minimum scores (cf. Step 6) for the EIS 2009 and EIS 2010 to ensure full comparability of SII scores between the EIS 2008 report and future EIS reports.Step 6: Determining Maximum and Minimum scores The Maximum score is the highest relative score found for the whole time period (including the two extrapolated years) within the group of core EIS countries (i.e. those countries for which data availability is at least 75%) excluding positive outliers and ‘small’ countries with populations of 1 million or less (i.e. Cyprus, Iceland, Luxembourg and Malta) as these small countries are 1) responsible for some of the observed outliers (cf. Step 2) and 2) due to their small size cannot be taken as representative for most of the other (larger) countries. Similarly, the Minimum score is the lowest relative score found for the whole time period within the group of core EIS countries excluding negative outliers and ‘small’ countries.Step 7: Calculating re-scaled scores Re-scaled scores of the relative scores for all years are calculated by first subtracting the Minimum score and then dividing by the difference between the Maximum and Minimum score. The maximum re-scaled score is thus equal to 1 and the minimum re-scaled score is equal to 0. For positive and negative outliers and small countries where the value of the relative score is above the Maximum score or below the Minimum score, the re-scaled score is thus set equal to 1 respectively 0.Step 8: Calculating composite innovation indexes For each year and for each innovation dimension (Human resources, Finance and support, Firm investments, Linkages & entrepreneurship, Throughputs, Innovators, Economic effects) a dimension composite innovation index (DCII) is calculated as the unweighted average of the re-scaled scores for all indicators within the respective dimension. For each year and for each block of dimensions (Enablers, Firm activities, Outputs) a block composite innovation index (BCII) is calculated as the unweighted average of the re-scaled scores for all indicators within the respective block. For each year the Summary Innovation Index (SII) is calculated as the unweighted average of the re-scaled scores for all indicators. The SII will only be calculated if data are available for at least 70% of the indicators.

488.2. Calculating growth rates

As an input to the EIS workshop in June 2008, the Joint Research Centre prepared areport presenting possible alternatives to calculating growth rates32. For the calculationof the average annual growth rate in innovation performance we have adopted ageneralized approach:

Step 1:

We first define growth for each country c per indicator i as y ict / y ict −1 , i.e. as the ratio between the non-normalised values for year t and year t-1. In order to minimize the effect of growth outliers on the overall growth rate, these ratios are restricted to a maximum of 2 (such that growth in an individual indicator is restricted to 100%) and 0.5 (such that a decrease in an individual indicator is limited to -50%).Step 2: We aggregate these indicator growth rates between year t and year t-1 using a geometric average33 to calculate the average yearly growth rate τ ct : wi ⎛ yic t ⎞ 1 + τ ct = ∏ i ∈I ⎜ t −1 ⎟ ⎜y ⎟ ⎝ ic ⎠ where I is the set of EIS innovation indicators used for calculating growth rates and where all indicators receive the same weight wi (i.e. 1/27 if data for all 27 indicators are available)34.

The average yearly growth rate τ ct is invariant to any ratio-scale transformation

and indicates how much the overall set of indicators has progressed with respect to the reference year t-1.Step 3: We then calculate for each country c the average annual growth rate in innovation performance as the geometric average of all yearly growth rates:

∏ (1 + τ ) wt t 1 + InnovationGrowthRatec = c t

[ where t ∈ 2004,2008 ] and each average yearly growth rate receives the same weight wt.

The average annual growth rate in innovation performance is different from that used inthe EIS 2007 report as it does not measure the change in the SII but the averagechange in the 29 innovation indicators.

32 Tarantola, S., (2008), “European Innovation Scoreboard: strategies to measure country progress over time”,Joint Research Centre, mimeo.33 A geometric mean is an average of a set of data that is different from the arithmetic average. The geometricmean is of two data points X and Y is the square root of (X*Y), the geometric mean of X, Y and Z is the cuberoot of (X*Y*Z), and so forth.34 It should be noted that the following two indicators are not included in the calculation of growth rates asdata are missing for too many countries: Share of SMEs introducing marketing or organisational innovationsand Resource efficiency innovators.

54Annex C: European Innovation Scoreboard 2008 – Definitions of indicators35 Indicators Numerator Denominator Reference year Source1.1.1 S&E and SSH graduates per Number of S&E (science and engineering) and SSH (social Population between 20 2006 (2005 for GR, TR; no data Eurostat 1000 population aged 20- sciences and humanities) graduates at first stage of tertiary and 29 years for LU) 29 (first stage of tertiary education (ISCED 5) education)1.1.2 S&E and SSH doctorate Number of S&E (science and engineering) and SSH (social Population between 25 2006 (2005 for GR, IT, IS; no Eurostat graduates per 1000 sciences and humanities) graduates at second stage of and 34 years data for LU) population aged 25-34 tertiary education (ISCED 6) (second stage of tertiary education)1.1.3 Population with tertiary Number of persons in age class with some form of post- Population between 25 2007 (2006 for IS) Eurostat education per 100 secondary education (ISCED 5 and 6) and 64 years population aged 25-641.1.4 Participation in life-long Number of persons involved in life-long learning. Life-long Population between 25 2007 (2006 for SE, UK, IS, CH) Eurostat learning per 100 population learning is defined as participation in any type of education and 64 years aged 25-64 or training course during the four weeks prior to the survey1.1.5 Youth education attainment Number of young people aged 20-24 years having attained Population between 20 2007 (2006 for IS, NO, CH) Eurostat level at least upper secondary education attainment level, i.e. and 24 years with an education level ISCED 3a, 3b or 3c long minimum1.2.1 Public R&D expenditures All R&D expenditures in the government sector (GOVERD) Gross Domestic Product 2007 (2006 for PL, UK, TR, CH; Eurostat (% of GDP) and the higher education sector (HERD). Both GOVERD and 2005 for IT, IS) HERD according to the Frascati-manual definitions1.2.2 Venture capital (% of GDP) Venture capital investment is defined as private equity Gross Domestic product 2007 (2005 for SK; no data for EVCA / being raised for investment in companies. Management BG, EE, CY, LV, LT, LU, HU, MT, Eurostat buyouts, management buyins, and venture purchase of SI, TR, IS) quoted shares are excluded. VC includes Early stage (seed + start-up) and Expansion and replacement (expansion and Two-year averages are used (cf. replacement capital) capital EIS 2008 Methodology Report)1.2.3 Private credit (relative to Claims on the private sector by commercial banks and other Gross Domestic Product 2007 (2006 for RO, IS) IMF GDP) financial institutions that accept transferable deposits such (line 99b of IMF as demand deposits (line 22d of IMF International Financial International Financial Statistics) Statistics)1.2.4 Broadband access by firms Number of enterprises (excluding the financial sector) with Total number of 2007 (2006 for IS; 2005 for CH) Eurostat (% of firms) 10 or more employees with broadband access enterprises (excluding the financial sector) with 10 or more employees2.1.1 Business R&D expenditures All R&D expenditures in the business sector (BERD), Gross Domestic Product 2007 (2006 for PL, UK, TR; 2005 Eurostat (% of GDP) according to the Frascati-manual definitions for IS; 2004 for CH)

35 A discussion of the choice of indicators and sources is provided in the 2008 EIS methodology report.

55 Indicators Numerator Denominator Reference year Source2.1.2 IT expenditures (% of GDP) Total expenditures on IT. IT expenditures capture hardware, Gross Domestic Product 2006 (no data for CY, LU, MT, TR, EITO / software and other services. The data cover the total IS) Eurostat market, including expenditure of the public and private sector (enterprises, as well as those of individuals and households)2.1.3 Non-R&D innovation Sum of total innovation expenditure for enterprises, in Total turnover for all 2006 (2005 for CH; 2004 for DE, Eurostat expenditures (% of national currency and current prices excluding intramural enterprises GR, FR, IT; no data for LV, AT, FI, turnover) and extramural R&D expenditures UK, IS)2.2.1 SMEs innovating in-house Sum of SMEs with in-house innovation activities. Innovative Total number of SMEs 2006 (2005 for CH; 2004 for DK, Eurostat (% of SMEs) firms are defined as those firms which have introduced new GR, FR, IT, SE, NO; no data for products or processes either 1) in-house or 2) in LV, LU, MT, SI, UK, IS) combination with other firms2.2.2 Innovative SMEs Sum of SMEs with innovation co-operation activities. Firms Total number of SMEs 2006 (2005 for CH; 2004 for GR, Eurostat collaborating with others with co-operation activities are those that had any co- FR, IS, NO) (% of SMEs) operation agreements on innovation activities with other enterprises or institutions in the three years of the survey period2.2.3 Firm renewal (SMEs entries Sum of the number of births and deaths of SMEs. Only Total number of SMEs 2005 (2004 for CZ, IT, LU, HU, Eurostat + exits) (% of SMEs) SMEs with at least 5 employees and who are active in NACE NL, PT, SK, FI, CH; 2003 for SI; classes C, D, E, G51, I, J and K are included 2002 for LT; 2001 for NO; no data for BE, BG, DK, DE, IE, GR, FR, CY, MT, AT, PL, TR, IS)2.2.4 Public-private co- Number of public-private co-authored publications. “Public- Total population 2006 Thomson publications per million private co-publications” are defined as all research-related Two-year averages are used (cf. Reuters / population papers (document types: ‘research articles’, ‘research EIS 2008 Methodology Report) CWTS reviews’, notes’ and ‘letters’) published in the Web of Science database.2.3.1 EPO patents per million Number of patents applied for at the European Patent Office Total population 2005 Eurostat population (EPO), by year of filing. The national distribution of the patent applications is assigned according to the address of the inventor2.3.2 Community trademarks per Number of new community trademarks. A trademark is a Total population 2007 OHIM / million population distinctive sign, identifying certain goods or services as Eurostat those produced or provided by a specific person or enterprise2.3.3 Community designs per Number of new community designs. A registered Total population 2007 OHIM / million population Community design is an exclusive right for the outward Eurostat appearance of a product or part of it, resulting from the features of, in particular, the lines, contours, colours, shape, texture and/or materials of the product itself and/or its ornamentation

56 Indicators Numerator Denominator Reference year Source2.3.4 Technology Balance of Royalty and license fees, receipts (Balance of Payments, Gross Domestic Product 2006 (2005 for AT; 2004 for TR; World Bank Payments flows (% of GDP) current US$) plus Royalty and license fees, payments (current US$) 2003 for SK; no data for DK) (Balance of Payments, current US$)3.1.1 SMEs introducing product Number of SMEs who introduced a new product or a new Total number of SMEs 2006 (2005 for CH; 2004 for GR, Eurostat or process innovations (% process to one of their markets FR, MT, NO; no data for IS) of SMEs)3.1.2 SMEs introducing marketing Number of SMEs who introduced a new marketing Total number of SMEs 2006 (2004 for BE, GR, ES, FR, Eurostat or organisational innovation and/or organisational innovation to one of their IT, SK, NO; no data for LV, SI, FI, innovations (% of SMEs) markets SE, IS, CH)3.1.3 Resource efficiency innovators, unweighted average of the following 2 indicators: • Reduced labour costs Number of innovating firms who replied that their product or Total number of 2006 (2004 for BE, DE, IE, GR, Eurostat (% of firms) process innovation had a highly important effect on innovating firms FR, IT, SI, IS, NO; no data for UK, reducing labour costs per unit of output CH) • Reduced use of Number of innovating firms who replied that their product or Total number of 2006 (2004 for BE, DE, IE, GR, Eurostat materials and energy process innovation had a highly important effect on innovating firms FR, IT, SI, SE, IS, NO; no data for (% of firms) reducing materials and energy per unit of output UK, CH)3.2.1 Employment in medium- Number of employed persons in the medium-high and high- Total workforce 2007 (2006 for HR, IS) Eurostat high & high-tech tech manufacturing sectors manufacturing (% of workforce)3.2.2 Employment in knowledge- Number of employed persons in the knowledge-intensive Total workforce 2007 (2006 for HR, IS) Eurostat intensive services (% of services sectors workforce)3.2.3 Medium and high-tech Value of medium and high-tech exports Value of total exports 2006 (2005 for TR) Eurostat manufacturing exports (% of total exports)3.2.4 Knowledge-intensive Exports of knowledge-intensive services are measured by Total services exports as 2006 (2005 for IE, FI; no data for Eurostat services exports (% of total the sum of credits in EBOPS (Extended Balance of Payments measured by credits in ES, FR, IT) services exports) Services Classification) 207, 208, 211, 212, 218, 228, 229, EBOPS 200 245, 253, 254, 260, 263, 272, 274, 278, 279, 280 and 2843.2.5 New-to-market sales (% of Sum of total turnover of new or significantly improved Total turnover for all 2006 (2005 for CH; 2004 for GR, Eurostat turnover) products for all enterprises enterprises FR, SE, IS, NO)3.2.6 New-to-firm sales (% of Sum of total turnover of new or significantly improved Total turnover for all 2006 (2005 for CH; 2004 for GR, Eurostat turnover) products to the firm but not to the market for all enterprises enterprises FR, SE, IS, NO)